Peter Martin, Crawford School of Public Policy, Australian National University
In the first year of the pandemic, Australians were given a glimpse of a truth so unnerving that economists and politicians normally keep it to themselves.
Whether a budget should be in surplus or deficit depends on the circumstances of the time. Gillard didn’t recognise it, Abbott didn’t recognise it. At last the message is getting through.
Governments like ours choose to borrow, they don’t have to.
Since its creation in 1999, the inflation rate in the euro zone has only exceeded 4 percent for a few months, on the eve of the Great Recession of 2008.
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Massive stimulus plans combined with rising production costs could lead to expectations that inflation will rise. And that alone could trigger an inflationary spiral not seen in 25 years.
Congress is spending trillions of dollars trying to rescue the US economy and support workers and businesses. Can America afford it? ‘No sweat,’ according to modern monetary theory.
Creating lots of new money is supposed to produce runaway inflation. The longer that it doesn’t happen, the more this branch of economics appears to have a point.
Modern Monetary Theory allows governments more freedom to run deficits, freedom the Australian government might need.
Arthur Caldwell almost defeated Robert Menzies in the poll in 1961, and won the debate about policy.
National Archives, National Library of Australia, Wikimedia
History suggests we can run sizable budget deficits while shrinking the budget debt burden. Mid last century our leaders weren’t afraid to say so.
Canadian bank notes are seen in this 2017 photo. Ottawa finances deficit spending by borrowing money. Twenty per cent of the money is borrowed from the Bank of Canada. In other words, the government borrows that money from itself.
THE CANADIAN PRESS/Adrian Wyld
Critics complain that government debt saddles future generations with a financial burden. The critics are wrong.
Newly-elected US Democrat Alexandria Ocasio-Cortez is co-author of the New Green Deal which proposes massively expanding the budget deficit as a way of supporting both the environment and the economy.
Alba Vigaray/EPA